Internal Revenue Service

From Wikicpa

The Internal Revenue Service (IRS) is the United States government agency that collects taxes and enforces the tax laws. The IRS is a bureau of the Department of the Treasury. The official U.S. Treasury regulations provide (in part):

The Internal Revenue Service is a bureau of the Department of the Treasury under the immediate direction of the Commissioner of Internal Revenue. The Commissioner has general superintendence of the assessment and collection of all taxes imposed by any law providing internal revenue. The Internal Revenue Service is the agency by which these functions are performed.

26 C.F.R. section 601.101(a) (emphasis added).

Contents 1 History: Bureau of Internal Revenue 2 History: Name change in the 1950s and reorganization 3 Administrative functions 4 Reorganization of the late 1990s 5 Further reading 6 External links

History: Bureau of Internal Revenue

In 1862, during the American Civil War, President Abraham Lincoln and the United StatesCongress created the office of Commissioner of Internal Revenue and enacted an income tax to pay war expenses (see Revenue Act of 1862). The position of Commissioner still exists today. The Commissioner is the head of the Internal Revenue Service.

The organization created to enforce these taxes was named for the internal revenue to be collected (and was formerly called the "Bureau of Internal Revenue"), in contrast to U.S. government institutions that collected external revenue through duties and tariffs. The income tax was repealed 10 years later. In 1894, Congress revived the income tax, but the following year the United States Supreme Court ruled, in Pollock v. Farmers' Loan & Trust Co., that taxes on capital gains, dividends, interest, rents and the like were direct taxes on property, and that the statute in question was unconstitutional because it had not apportioned the direct taxes among the states according to population. In 1913, however, the states ratified the Sixteenth Amendment to the United States Constitution, which removed the requirement that income taxes (whether considered direct or indirect taxes) be apportioned by population.

In 1918, to finance World War I, the top rate of the income tax rose to 77%. During the post-war years, the top rate was lowered to 24%, but rose again during the Great Depression. During World War II, Congress introduced payroll withholding and quarterly tax payments, ostensibly as an emergency measure.

History: Name change in the 1950s and reorganization

In the 1950s, career professional employees replaced the patronage system. Currently, only the IRS Commissioner and Chief Counsel are selected by the President and confirmed by the Senate. The Bureau of Internal Revenue name also was changed to the Internal Revenue Service to emphasize "service" to taxpayers.

Administrative functions

In addition to collection of revenue and pursuing tax cheats, the IRS issues administrative rulings such as revenue rulings and private letter rulings. In addition the Service publishes the Internal Revenue Bulletin containing the various IRS pronouncements. The controlling authority of regulations and revenue rulings allows taxpayers to rely on them. A private letter ruling is good for the taxpayer to whom it is issued, and gives some explanation of the Service's position on a particular tax issue. As is the case with all administrative pronouncements, taxpayers sometimes litigate the validity of the pronouncements, and courts sometimes determine a particular rule to be invalid where the agency has exceeded its grant of authority. The IRS also issues formal pronouncements called Revenue Procedures that among other things tell taxpayers how to correct prior tax errors.

More formal rulemaking to give the Service's interpretation of a statute or when the statute itself directs that the Secretary of the Treasury shall provide, IRS undergoes the formal regulation process with an NPRM (Notice of proposed rulemaking) published in the Federal Register announcing the propsed regulation, the date of the in person hearing and the process for interested parties to get their views heard either in person at the hearing in DC or by mail. Then following the statutory period provided in the Administrative Procedure Act (an abiding interest of Justice Scalia's dissenting opinions) the Service decides on the final regulations as is or as reflecting changes or sometimes withdraws the proposed regulations. Generally, taxpayers may rely on proposed regulations until final regulations become effective. For example the choice of reasonable actuarial cost methods allowed is still based on the 1982 proposed regulations because a final reg has yet been promulgated.

Reorganization of the late 1990s

As a by-product of hearings on abusive conduct by IRS employees, Congress enacted the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105-206, 112 Stat. 685 (July 22, 1998). As a result of that Act the IRS now functions under four major operating divisions: Large & Mid-Size Business (LMSB), Small Business / Self-Employed (SB/SE), Wage and Investment (W&I), and Tax Exempt & Government Entities (TE/GE). The IRS also includes a criminal law enforcement division.

Summary of Collections before Refunds by Type of Return, Fiscal Year 2003:

Type of Return	Number of Returns	Gross Collections (Millions of US$)
Individual Income Tax	130,728,360	987,209
Corporate Income Tax	5,890,821	194,146
Employment Taxes	29,916,033	695,976
Gift Tax	287,456	1,939
Excise Taxes	812,483	52,771
Estate Tax	91,679	20,888

In fiscal year 2004, the IRS collected $43.1 billion in enforcement revenue. This is $5.5 billion or a 15 percent increase from fiscal year 2003.

Recently, the IRS has altered its policies. The current Service plus Enforcement equals Compliance motto has led to more investigations of abusive tax schemes.

Taxpayers should be aware that the IRS does not initiate communications, or ask for information, by e-mail. Phishing scammers pretending to be Treasury officials are using this means of communication to steal personal data from individuals.

The current Commissioner of Internal Revenue is Mark W. Everson, who was confirmed by the U. S. Senate on May 1, 2003.

Further reading

• Neal Boortz, John Linder. The Fair Tax Book. " Amazon.com
• David Cay Johnston. Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich - and Cheat Everybody Else. New York: Portfolio, 2003. (ISBN 1591840198)
• Rossotti, Charles O. Many Unhappy Returns: One Man's Quest To Turn Around The Most Unpopular Organization In America. Cambridge: Harvard Business School Press, 2005. " Amazon.com
• Roth, William V., Jr., and William H. Nixon. The Power to Destroy. New York: Atlantic Monthly Press, 1999. (ISBN 0871137488)

External links

• wikipedia.org
• Internal Revenue Service Official website
• IRS Abuse Reports Claimed accounts of abuses against U.S. citizens by the IRS
• Tax Protester FAQ by Dan Evans rebuts claims of the illegitimacy of the income tax and the IRS
• Americans for Fair Tax argues for the replacement of the income tax with a consumption tax
• IRS tax forms Description
• Internal Revenue Service Fan website for IRS with RSS News, Forums and RSS blogs.